April 9 (Bloomberg) -- Western drugmakers may have to give
hefty subsidies and forgo some profit on expensive cancer drugs
if they want access to China’s “huge market,” the country’s
former health minister said.

With the cost of some oncology drugs topping $100,000 a
year, Chinese officials may increasingly push for deals like one
reached last year with Novartis AG, in which the company agreed
to donate three doses of its leukemia drug Gleevec for every one
sold to the government, the former minister, Chen Zhu, said
during an interview in Washington, D.C.

“If the cost is too high, maybe only a few percent of
patients can benefit,” said Chen, who stepped down last month
after seven years as China’s top health official. “If we can
arrange an appropriate, acceptable, affordable price, then you
can have a huge market.”

Negotiating discounts may be drugmakers’ best alternative
to the situation in neighboring India, where the government has
weakened patent protections from products made by Novartis and
Pfizer Inc. in the name of providing affordable care to
patients. While such “compulsory licensing” shouldn’t be
abused, Chen said, its use couldn’t be ruled out in China.

The comments came in a wide-ranging interview in which
Chen, 59, said he sensed an openness to new anti-smoking
regulations among Chinese leaders, brought on by rising lung-cancer rates. The country, the world’s largest emerging market,
also has “significantly strengthened” its readiness for an
infectious disease outbreak since coming under criticism during
the SARS pandemic 10 years ago, he said in the April 5
interview.

Flu Outbreak

Chinese officials yesterday asked citizens to avoid contact
with live poultry, as they try to stem an outbreak of a new
bird-flu strain that has so far claimed seven lives. China’s
Center for Disease Control and Prevention said it was preparing
a vaccine in case the H7N9 virus starts spreading among humans.

In contrast to past outbreaks, when Chinese officials were
accused of withholding information, there’s a new commitment to
transparency and better procedures for reporting infections,
Chen said.

Chen, a hematologist who has done pioneering work on
leukemia treatment, was in Washington to present an award given
by the nonprofit National Foundation for Cancer Research. He is
now a vice chairman of the National People’s Congress, China’s
legislature.

$1 Trillion Market

Facing slowing sales in the West, companies including New
York-based Pfizer and Novartis, based in Basel, Switzerland,
have set their sights on China, now the world’s third-largest
pharmaceutical market. Driven by an aging population and
expanded insurance coverage, health-care spending in the country
is expected to almost triple by 2020, to $1 trillion a year,
according to an August report from McKinsey & Co.

While government insurance programs have increased coverage
of cancer treatments, there’s still a gap, especially in rural
areas, Chen said in his interview. Closing it means drugmakers
may have to give up some profit margin on their drugs, he said.
Access to China’s 1.3 billion people should more than cover the
loss, Chen said.

Novartis’ deal on Gleevec, struck with the government in
Jiangsu province, may offer one model, he said. The pact --
which Chen dubbed “buy one, give three” -- lowered the cost of
an annual regimen to about 72,000 renminbi, or $12,000.

In the U.S., a year’s supply of the drug costs about
$77,000 wholesale, Julie Masow, a Novartis spokeswoman, said in
an e-mail.

Patent Fight

China, by contrast, has reserved the use of compulsory
licenses to “national emergencies” like bird-flu outbreaks,
Chen said. “We keep the right of using this measure, but it has
to be studied carefully.”

On tobacco, Chen said he was “pushing very hard” to enact
tougher smoking policies. While the country banned public
smoking in 2011, the law lacks penalties, hampering enforcement.
The government, while regulating the industry, also owns China
National Tobacco Corp., the world’s biggest cigarette maker.

Cancer is now the country’s top killer among major
diseases, Chen said. That has made the national government more
open to the idea of tougher regulation, he said. So has the
experience of other countries that have banned outdoor smoking
without a steep drop in revenue from tobacco taxes.

“We are still a country that’s developing,” he said. “We
need to consider government revenue to be able to invest more in
people’s livelihoods. So we need a balanced approach.”